Ayvens (3AL.F) Q2 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Ayven's Q2 2025 Results Conference Call. Today's speakers will be Tim Albertsen, CEO; and Patrick Sommelet, Deputy CEO and CFO. I now hand over to Mr. Tim Albertsen. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to this Ayven's Q2 '25 Results Conference Call. As in previous calls, I'm hosting this call with Patrick. First, I'll present the highlights of the second quarter, and then Patrick will comment on our financial results. We'll then, as always, take your questions at the end. Let's go straight to Slide 5 on our financial highlights. Ayvens has posted strong financial results for the second quarter, continuing on the positive trends set in the first quarter despite an overall subdued environment. They reflect the disciplined execution of our PowerUp '26 strategic plan with decreasing revenues and constant reduction in operating -- with increasing revenues and constant reduction in operating expenses. Margins stood at a high level at 550 bps versus 539 bps in Q2 '24. Used car sales results after depreciation adjustment per unit stood at EUR 972, up 57% compared to Q2 '24. It benefited from a sharp reduction in depreciation adjustments due to the end of the PPA amortization in Q1 2025 and lower release of prospective depreciation. Conversely, used car sales results before depreciation adjustment has decreased compared to Q2 '24 and stood at EUR 1,234 versus EUR 1,480 in Q2 '24. These strong revenues, combined with the continued reduction in operating expenses, resulted in a cost/income ratio of 57.6%, down by 4.3 percentage points versus Q2 '24. Over H1 2025, cost/income ratio stood at 57.8%, in line with our guidance for the full year 2025 of between 57% and 59%. As a result, our net income group share stood at a very high level at EUR 271 million, up 39% versus Q2 '24, corresponding to a return on tangible equity of 13.7% versus 10.1% in Q2 '24. This level of net income has been supported by the strong used car sales results. Going forward, we expect normalization to continue in line with our guidance for the full year 2025. On the balance sheet, our core Tier 1 ratio stood at 13.5% at the end of June '25, showing an increase of 30 bps versus March '25, mostly driven by a decrease in our risk-weighted assets, on which Patrick will provide more color when detailing our financial performance. Let's turn to next page on key strategic developments for the second quarter. Integration is advancing according to plan with IT and legal mergers further progressing this quarter and covering now approximately 70% of the group. Synergies are ramping up as planned, reaching EUR 146 million in H1 '25, in line with our annual guidance of EUR 350 million for the full year '25. Now that the PowerUp 2026 strategic plan is well advanced, I have announced my retirement on the 1st of December '25. A smooth management transition has been secured by the Board with the appointment of Philippe de Rovira as CEO of Ayven starting the 1st of December. Philippe is a seasoned executive in the automotive and leasing industry, having held various positions in businesses and finance at Stellantis over the past 27 years. Thanks to a strong background and the support of the executive team, I'm sure that he will be successful in leading Ayven in delivering the PowerUp '26 plan and embracing the next step of strategy and developments of Ayven in the coming years. Last but not least, ex-LeasePlan shareholders have started to sell their stake in Ayvens as expected through 2 successful accelerated book buildings performed over Q2 '25. Altogether, they sold around EUR 90 million of their shares to both new investors and existing shareholders, and they now hold around 18% of Ayvens' capital versus 29% before these 2 transactions. Ayvens free float have now increased to 30%. Subsequently, trading volumes are trending higher, and Ayvens was included in the STOXX Europe 600 Index in June, contributing to the increased visibility and trading of our share. Let's now turn to fleet and earning assets. The overall economic environment in Europe has remained subdued over the last quarters, also impacting the dynamics of the mobility industry. New car deliveries for passenger cars in Europe are down 2% in H1 '25 compared to H1 '24, remaining well below pre-COVID levels and demand for operating lease products from corporates is less dynamic, also affected by changes in taxation regimes across Europe. Against that backdrop, we are not seeing yet the results of the commercial actions that we have launched to resume profitable growth. In Q2 2025, our total fleet is down 4.5% compared to Q2 '24, still reflecting the comprehensive review of our client portfolio in 2024. And as a consequence, earning assets are slightly decreasing, standing at EUR 52.9 billion, down EUR 300 million compared to Q2 2024. If we exclude the 3 businesses under restructuring, namely U.K., Turkey and the subscription activity in Germany, earning assets were up 0.7% and up 1.1% when further excluding negative ForEx impacts, underlining that earning assets are still supported by a significant price effect even if lower than before. In terms of deliveries by powertrain, EV penetration reached 43% versus 39% in Q2 '24, with full electric at 30% and plug-in hybrid at 13%. As indicated in previous quarter, a series of commercial actions have been launched to fuel future profitable growth. Let me now turn to the next slide and give you some color on our strategy on the retail segment, which has a strong growth potential. On top of our core corporate client franchise that represents close to 66% of our activity, Ayvens benefits from a wide and well-established retail network with retail clients representing about 1/3 of Ayvens' funded fleet of which 65% to SMEs and 35% private individuals. We address this retail segment through 3 channels: first, through 18 partnerships with OEMs, both well-established brands and promising new market entrants, representing 42% of our retail fleet. Second, indirectly through more than 400 partners such as banks, insurance, mobility providers and brokers, representing another 42%. And finally, directly under the Ayvens brand and platforms, representing the remaining 16%. With the Ayvens brand now rolled out across the group, our plan is to develop our direct reach with retail clients, offering us full client ownership with greater cross-selling and upselling opportunities and better margins on a growing market segment. For that purpose, we have extended our product offering to meet distinctive and evolving mobility needs for SMEs and private individuals. Besides, we have scaled up our capabilities to develop our direct retail channel with dedicated teams, digital assets and online offering in our core markets. We are well positioned to capture retail growth opportunities and we will continue to develop our capabilities further. I also expect that Ayvens can benefit here from Philippe's vision and experience in leasing to retail clients. I now hand over to Patrick to comment on our strong Q2 '25 financial performance.

Thank you, Tim, and good morning to all. I will start with a few words on our revenues on Slide 10. Ayvens posted very strong revenues in Q2 '25 with gross operating income amounting to EUR 855 million, up 9% versus Q2 '24 and plus 4% versus Q1 '25. These revenues were driven upward by both increased margins and higher UCS results. Margins stood at EUR 712 million, up EUR 25 million versus Q2 '24. Impact of nonrecurring items, mostly hyperinflation in Turkey reduced to minus EUR 19 million versus minus EUR 27 million in Q2 '24. Underlying margin were up EUR 17 million compared to Q2 '24 at EUR 731 million. UCS results on depreciation adjustments were up 46% versus Q2 '24, reaching a high level of EUR 143 million, highlighting the careful management of reserve values we have put in place over the last 2 years. As shown on the graph on the right-hand side of the slide, the strong EUR 45 million increased results is a result of 2 opposing trends. First, a EUR 53 million decrease in used car sales results before depreciation adjustments, which stood at EUR 181 million versus EUR 234 million in Q2 '24 and then a EUR 98 million decrease in negative depreciation adjustments amounting to minus EUR 38 million versus minus EUR 136 million in Q2 '24. As Tim mentioned earlier, PPA impact on UCS ended in Q1 '25 and the release of prospective depreciation is gradually reducing. Let's now turn to the next page on margin. Underlying margins were robust and stood at 550 basis points in Q2 '25, up 11 basis points versus Q2 '24. They were underpinned by the ramp-up in procurement and insurance synergies. Compared to Q1 '25, margins are down 12 basis points. As explained last quarter, margins were supported in Q1 '25 by a very strong performance in all the services components, which have come down a bit in Q2 '25, especially on short-term rental revenues as well as fleet management and maintenance revenues. From that perspective, Q2 '24 is more in line with the normal quarter. On the other hand, leasing margins have increased, benefiting from our actions to restore margins and lower residual values on EVs, leading to higher financial revenues. As indicated in previous quarters, the swing between the various revenue lines from a quarter to another are also partly explained by accounting alignment taking place across the organization, along with integration. Overall, margins were strong in H1 '25 at 557 basis points versus 531 basis points in H1 '24. Let's move to the next page. The UCS results and depreciation adjustments reached EUR 143 million versus EUR 98 million in Q2 '24. This is a high level that compares well with the industry, mainly driven by lower impact of depreciation adjustments with the end of the PPA amortization in Q1 '25 and lower release of PD. Over the last 3 quarters, our result per unit before depreciation adjustments has remained almost stable overall, marking an apparent growth in the UCS results normalization. Behind this trend, there are strong disparities between powertrains. While ICE UCS results remained strong this quarter, BEV UCS losses are not improving on the back of new BEV prices evolution, notably in the U.K. As indicated earlier by Tim, normalization of used car sales results is expected to resume in line with our full year guidance, notably driven by the growing share of EVs in our fleet going forward. Volumes sold were down 11,000 units versus Q2 '24 at 147,000 vehicles. The decline is mostly explained by the lower number of cars that are being returned at the end of the contract. Indeed, these cars are mostly '20 to '22 vintages. And as you may remember, production in those years were negatively impacted by supply chain disruption following the COVID crisis and to some extent, to the start of the war in Ukraine. Let's turn to the next page on operating expenses. Total operating expenses are trending down, showing a decrease of EUR 28 million compared to Q2 '24. If we look first at underlying costs, they were down EUR 21 million versus Q2 '24. This is a decrease of 4.8%. Cost synergies have gained momentum as IT migrations and legal integration are being executed in mid '24 and early '25. This is delivering savings increasingly and according to plans. Continued strict cost monitoring across the organization also helped drive down operating expenses. This cost decrease, combined with higher margins has led our cost-income ratio to 57.6%, down by 4.3 percentage points compared to Q2 '24. Cost to achieve amounted to EUR 26 million versus EUR 33 million in Q2 '24, in line with plans. Our CTA over H1 '25 amounted to EUR 61 million. And as a reminder, our guidance for the full year is between EUR 115 million and EUR 125 million. Let's turn to the next page with the rest of the income statement. Starting with cost of risk. As depicted on the left-hand side graph, the cost of risk is trending a bit lower than previous quarters at EUR 27 million. This represents 20 basis points of average earning assets versus 23 basis points in Q2 '24. Profit before tax stood at a strong EUR 386 million, up 38% versus Q2 '24 as a result of higher margin, lower depreciation adjustment in the used car sales results and also lower operating expenses as we commented and lower cost of risk. Effective tax rate stands at 29.5%. This is in line with our indication for the year, and the net income group share is strongly up at EUR 271 million, an increase of close to 39% versus Q2 '24. Let's now turn to our final slide on capital and RWA. So as Tim alluded to at the beginning of our presentation, RWA were down EUR 900 million, standing at EUR 55.8 billion versus EUR 56.7 billion in Q1 '25. So this decrease results mainly from the following factors. First of all, the RWA earning assets were down EUR 200 million. So this is linked to the evolution of the balance sheet. Second, the market risk-weighted assets, which results from the net equity position in subsidiaries outside the Eurozone were down EUR 300 million versus Q1 '25 due to intragroup dividend distribution from the subsidiaries, Turkey representing around half of the decrease. Third, RWA and cash deposits declined by EUR 200 million decrease of deposits indeed. And lastly, RWA and Ayvens insurance were EUR 200 million lower due again to intragroup dividends, reducing its net equity position. So that leaves us with a CET1 capital of EUR 7.5 billion at the end of June '25. Our CET1 ratio stands at a high level of 13.5% versus 13.2% at the end of March '25. This concludes our presentation. Thank you for listening. We are now ready to take any questions you may have.

[Operator Instructions] The first question is from Jacques-Henri Gaulard with Kepler Cheuvreux.

Tim, congratulations on your retirement, although we'll probably hear from you later, like you. Two things. The first one is on excess capital. I remember that you linked the usage of the excess capital to the conclusion of the FCA Motor Finance case, and we know that the Supreme Court is going to give it's view on Friday, actually tomorrow. Is it fair to assume that we should have a decision quickly after that? And the second point is, I appreciate that you gave a bit of guidance for some of your -- of the metrics during the call, but you didn't repeat them in writing. Does it mean that for the outlook, generally, you leave that to your successor? Or should we assume nonetheless that the 2025 guidance is still valid, more or less?

Thank you, Jacques. Yes. So on your first question, it's true that tomorrow after the market closing, we expect the Supreme Court to give the ruling. And then anticipated is that the FCA will come back in September, basically how to execute the verdict. So we will, first of all, have a direction tomorrow evening, which is good. And we anticipate to have more clarity by end of September, early October. And you're right, excess capital, let's say, decisions will not necessarily -- will not be taken before we have clarity on the U.K. case. On the guidance, I mean, first of all, we have a policy of giving guidance once a year and that we have not stated it this time, it doesn't mean that we do not keep our guidance for '25. We are still in line with that. Fair to say that probably one of the next questions will be about the growth of NEA. But obviously, the main guidance that has been given is still within reach, and we have built ourselves flexibility on all the other metrics if we do not see that the market is coming back to growth basically. So yes, guidance for '25 and for that matter, for '26 is confirmed still.

The next question is from Sharath Kumar with Deutsche Bank.

I have 3, please. Firstly, on margins. I hear you when you speak about the moving parts within leasing and service margins. So do you think going forward, is it fair to expect further softness given that you would expect to resume fleet growth? So any guidance on margins from here would be helpful. Also, we saw some softness in service margins in the third quarter. So is it likely to repeat this year as well? So that is the first one. Second, on used car sales results, I again hear your comments on seeing a faster normalization going forward, increasing share of EVs, et cetera. But even considering this, I feel that your full year guidance of EUR 700 to EUR 1,100 is conservative. So what reasons have prevented you from upgrading this guidance? And lastly, just on the succession. So what has been the initial feedback received from investors and clients on the new CEO? Can you talk about transition plans that we can expect in the second half?

Thank you, Sharath. So I'll let Patrick comment on the margins, but let me just do the used car sales and the succession plan first then. So on the used cars, it's quite -- there's quite a different trend in the market. So overall, it looks pretty good, as you mentioned. So what we see is the ICE cars, the hybrid cars are performing extremely well, and we anticipate that to keep going. We are seeing that the BEVs is actually trending a bit worse. Now it's quite specific markets. I think Patrick mentioned the U.K., which is a real problem to be honest. So I think overall, anticipation is that the, I would say, ICE cars remain strong and the hybrids for that matter. But as you know we will have a bigger portion of BEVs coming through and that we have not seen an improvement there yet. Obviously, we expect to see that normalization coming through. So the 700 to 1,100 is still a valid guidance on that point. On the succession, so I think, first of all, this has been obviously planned well. The Board have had time to go through a proper selection process. And I think the choice of Philippe has been very well received. I think it's well received that it's an executive coming from the automotive industry. Personally, I think that's also very good. When we look 5 years ahead, the transformation in the automotive sector is quite significant for the time being. And obviously, it will have an impact on our business as well. And hence, having a deep understanding of how the automotive industry will evolve over the next 5 years is certainly a plus. And again, the feedback, both from clients, partners and the markets have been positive also that it has been, I would say, done in a very orderly manner. So I think that's important. Patrick on the margins?

Yes. Thank you for the question. Indeed, on the margin. So we had indicated in previous calls that throughout integration, we were aligning the accounting practices and the accounting classification of the various types of revenues. So this is explaining this quarter a bit, not all of it, but a bit the lower service margin that we have had, representing approximately EUR 20 million from Q1 to Q2 and from Q2 to Q2. It's between the margins revenues. It's also between service margin and UCS as we have aligned the classification on some fees, which are earned through the sale of UCS cars with something which needed to be done. So it's behind us now. We might still go through some accounting alignment in the following quarters, but expected at lower level. So it should not be noticeable going forward and that has taken place. So apart from that service margin, and I think I indicated on the call in Q1 that all the subcomponents of service margin in Q1 were at record level. This quarter, some of them, and it's really business as usual are a bit weaker. That's explaining the other part of the weaker service margin that we have in Q2. It's not something that we can predict or we can say it will reproduce or not. It will come again or not, but it's clearly visible this quarter despite the extraction also of higher synergies. And I think you have question as well on -- you have questioned us as well on Q3, which obviously, at this stage, I cannot comment as the month of July is barely over.

The next question is from Geoffroy Michalet with ODDO.

Congratulation for the results. I have 2 questions on UCS. The first one is if you could give us a bit of help on the mix element in the Q2 UCS results. I mean, has the share of EVs resold this quarter gone down versus previous quarter, for instance, that would have been a support for the overall margin per unit? And the second question also linked to UCS is, can you give us some elements to appreciate the range of profit that you are making on ICE per unit and the range of loss that you are making on EV?

Thank you, Geoffroy. So to be honest, we don't really give numbers on the different powertrains and we start doing that. But obviously, let's say, the ICE cars are trending still very high to the past, mainly driven by natural, I think we mentioned that before, the supply and demand situation is that there is still obviously less ICE cars, used ICE cars for sale. Also, the manufacturers have stopped producing the segment A cars like the Fiesta cars and these kind of cars, which means that the entry-level pricing is high. And obviously, it means that people typically are buying maybe a used car, which helps, let's say, the ICE cars to perform really well. And it's, I would say, structurally, we believe for at least the next 12 to 18 months. And as I mentioned, obviously, on EVs, it's not a clear picture. So it's quite specific to markets. And I said the U.K. market is particularly bad hit because of big volumes in batteries, but also the fact that we cannot bring these cars elsewhere. They stay in the U.K., you have to sell them in the U.K., whereas in, let's say, Mainland Europe, we are actually -- I think we said that before as well, we are cross-border selling typically up to 50% of our EVs and bringing to the markets where we obtain the best prices. And the more mature the EV markets are, the better the performance is. So typically, in the Nordic countries, you actually see already a kind of maturity of the EV markets and people looking for used EVs. That's not the case in Germany. It's not the case in France. It's not the case in Italy and Spain yet. Obviously, we expect that to come. But -- so we don't necessarily expect a big improvement on the BEV side for the time being. And to your question, I mean, obviously, we have been taking more and more EVs into the fleet since 2020 or '21. And obviously, the number of EVs going through the used car sales is increasing. I mean the majority of our sales is still ICE cars. I hope that answers your question.

Yes. Just maybe to help us understand better, are we speaking about a couple of hundreds of lots or a couple of thousands of lots on EV?

We talk in thousands.

[Operator Instructions] Mr. Albertsen, there are no more questions at this time. The floor is back to you.

Okay. Well, thank you very much for listening. Thanks for the questions. I think from our side, we want to wish you all a nice summer vacation. And of course, if there is any further questions, you can always address our Investor Relations teams. We're ready to answer any questions you may have. Thanks a lot, and have a good summer.

Thank you very much.

Ladies and gentlemen, this concludes today's Ayvens conference call. Thank you for your participation. You may now disconnect.